This is a pretty good article on why stimulus spending doesn’t stimulate:
It’s something I have always wondered if there was a simple explanation for. My summary of the basic concept that the guy puts forward is this: When an individual (or company) exchanges money for a computer, wealth is created on both sides. Of course the manufacturer of the computer has determined that the money they are getting is worth more to them than the computer they made. But the other, equally important issue is that the individual has determined that the value of the computer is greater to them than the money they are exchanging for it. So both are better off.
But when government does this, they are acting only as a middleman. They take money from taxpayers and exchange it for, say, a computer. Wealth is created for the manufacturer, but does the taxpayer feel he has made a good exchange? In most cases, probably not. So the amount of wealth created is much less in this scenario than the first: certainly equal for the manufacturer, but less (or even negative) for the taxpayer.
Debt spending is merely time shifting the above scenario – taking future wealth and performing the exchange now.
If people spend their own money, it will create more wealth than having the government do it for them. Really quite simple. Probably in Adam Smith somewhere.
